Scapegoating NAFTA

The Democratic contenders are stumbling all over themselves to show how disappointed they are with NAFTA, and how committed they are to changing it. Fact is, there’s no reason to think that withdrawing from NAFTA — if possible — would help create jobs in the United States. That’s because the United States trade deficit — the bogeyman that’s caused a mere 95.1 percent of the workforce to have a job — is not primarily with Mexico (or Canada, for that matter). In 2007, the United States ran its largest trade deficit with China. Our second-largest deficit was with Japan. Our third and fourth-largest bilateral deficits were with Mexico and Canada respectively. The deficits with Mexico and Canada together totaled about half the trade deficit with China. So if you believe that trade deficits are robbing the United States of jobs and growth (and the data show the opposite to be true), then your chief complaint ought to be about China — not Mexico (or Canada). But what if you did repeal NAFTA? What if you took away the low tariff rates that give an incentive for American firms to locate their production in lower-cost Mexico? Why would you imagine that those companies would relocate production in the U.S.? It’s entirely possible that they would relocate to a lower-cost manufacturing country — such as Malaysia, Thailand, or China. Not only would this not help create jobs in the United States, it would reduce them (at least in the short term). That’s because our imports from Mexico have a much higher content of material originally produced in the U.S. (our exports to Mexico) than do our imports from China. So if we replace imports from Mexico with imports from another country, it harms our export base. Lastly, the nation’s largest trade deficits are with countries that we have no trade agreements with. The proper public policy for addressing such deficits then, isn’t to get out of the ones that we have, it’s to negotiate more: